Dr. Roland Strauss, Managing Director of Knowledge4Innovation:
Innovation needs more than research
Without skilled and talented people knowledge cannot be turned into economic power
Maria Koleva, Brussels
5 November, 2011
There is still a misconception about research and innovation in the sense that many people when speaking about innovation they focus on research related issues which indeed is an important part in the innovation value chain. A fundamental difference is that research results are obtained through substantial public and private funding while the main goal to innovate is to create value, jobs and economic growth ultimately the return of investment that is necessary to reinvest in research activities.
Here in Europe we not only loose our brain to other regions, we are also not capable of attracting brain from other regions. According to me a great, but largely untapped, financing power for innovation from the public side is through pre-commercial public procurement and innovation deployment procurement.
Dr. Roland Strauss is Co-Founder and Managing Director of Knowledge4Innovation (K4I), an open, independent and non-profit stakeholder association based in Brussels. He is co-chairing the Governing Board of the Knowledge4Innovation Forum of the European Parliament and organiser of the European Innovation Summit. Dr. Strauss is also the Head of the Brussels Office of BITKOM, the leading German ICT and media trade association. He served over 10 years as a VP for Siemens Government Relations and brings over 18 years of experience in the environment of the EU Institutions.
- Dr. Strauss, what is an innovation ecosystem and what are the main challenges to make it function successfully?
- I am thinking of two dimensions of innovation ecosystems: from a European perspective the challenge is to achieve a certain level of coherence of policies, programmes and instruments from the EU to the national, regional and local levels as well as to align the policies in support of innovation along the innovation value chain from education to the internationalisation of companies. While competition between different national systems is certainly beneficial, fragmentation, complexity and duplication inherent in the European research and innovation landscape are important obstacles. Equally important is to leave some flexibility to the regions while at the same time establishing a coherent approach across Europe. From an innovation practitioners’ perspective the ‘local level innovation ecosystem’ must provide a framework and the ingredients allowing all actors to work smoothly together. Innovation ecosystem means really bringing the relevant actors with different backgrounds from the public, private and academic sectors together to jointly contribute to an innovative project. The public actors’ role is to set the right legal framework, limit administrative burden, provide financial incentives and support the entrepreneur to access the market with demand side measures. The ecosystem must be innovation friendly in the sense that people must be able to explore, to find out, and to take risk.
If you have bright ideas but you need two years to set a company and you have many regulatory burdens then bright ideas don’t serve anything. Same, if you have bright ideas and no money it also doesn’t work. People play a very crucial role and it’s not only about the innovators and creative people but it’s about the entrepreneurs. And if there is no entrepreneur driving the development then, well, it cannot come to the market. It’s by definition a risk taking environment. It must allow to try and fail, to retry and fail, and retry and succeed. That’s the ecosystem of innovation.
- In what aspect the European policy makers can do more to facilitate the innovation activities in the EU according to the Europe 2020 goals?
- Following the Europe 2020 Strategy and flagship initiatives such as Innovation Union and Digital Agenda, the Commission and in particular national governments started to put more emphasis on synergies between research and innovation policies and instruments. Today competent ministries (mainly those responsible for education, science and economy) fight each other for taking the lead in innovation. Innovation being a very broad concept should be managed on a government level either by an innovation ministry or even better by the heads of states – innovation must become ‘Chefsache’. There is still a misconception about research and innovation in the sense that many people when speaking about innovation they address research. So research and innovation are two completely different things. This must be understood. This is very important. Research delivers partly knowledge especially in technology and scientific areas that is used to produce or to deliver innovations, but it is only one input for innovations. And research is not innovation at all. Research is something completely different. It takes place in research labs, in universities, it’s more intellectual activity not associated with risk, I mean nobody expects, let’s say, a direct concrete result from research in terms of job creation or revenue generation. Innovation has to take place in an environment without lots of restrictions and rules with the ultimate goal to generate successful business, create companies, make them grow, go international and conquer the global market. What is innovation? Everybody is talking about innovation but nobody says what it is. Innovation means by definition ‘unfolding knowledge into economic power’. It is about risk taking and acceptance of failure.
- Statistics on innovation still shows that 25 Member States are rather below the 3% of GDP target for R&D expenditure. In this respect do you see near time horizons for the Innovation Union?
- Investing in R&D means spending in the creation of knowledge. There is consensus that Europe is not lacking knowledge but that it has difficulties in turning knowledge into innovations that generate jobs and growth. This is why our initiative is not so much looking into the overall amount spent for R&D but how the funding dedicated to innovation and especially from the structural funds can be spent in a smarter and more efficient way. Technological and scientific knowledge is only one driver of innovation even if it is an important one. Innovation is also a lot about people, entrepreneurs, risk taking and not being blamed for failure. I think that innovation needs more than research. Financing is another very important element of innovation. It is not about grants, it is about risk capital. Venture capital companies make 10 investments and hope that one will result in a big success and they know that another nine investments will fail. In research you have your budget, you have your grant and you produce some results and everybody will be happy. I’ve never seen that researcher has complaint of his poor results. Innovator, if he fails there is bankruptcy, there are personal implications. Also innovations is about start-ups and SMEs, it is about employment, market, demand, communication, it is a much broader concept than research. Knowledge and ideas do not come only from scientific research and innovation is not only in the area of products we develop but also in the area of services. Service innovations are not at all associated with research and technology. So technology is important but especially looking into the size of the markets in Europe 60-70% of GDP is created by service industry. I would not agree to say that if you double the research budget you will double the innovation. I would not say we are lacking of money but I think it’s a lot about smart and correct spending. We must stop creating an own interest industry of innovation consultants and support networks without knowing exactly what the concrete results are and how to measure the return of investment. We must make sure that the money goes where it is most needed and generates best results.
- What's the role of national and regional policies in the EU innovation agenda?
- Obviously innovation does not happen in Brussels at the EU level. And it is not the policymakers that innovate, nor can they ‘order’ innovation. Innovation really takes place on the regional and local levels, in the minds of people and ultimately in companies. Policy making and instruments are only there to facilitate the process, create the right environment and let the innovators be creative and do their work. We should not overestimate the role of Brussels and policy making and instruments however it is a necessary integral part of the European level innovation ecosystem. Without the right framework, without these instruments and without a coordinated approach somehow Europe will not become a global innovation leader. Governments at all levels must act as a facilitator, cut red tape, create an environment that stimulates innovation activities and rewards creativity and entrepreneurial spirit.
- How can Europe better exploit the innovation created in the EU?
- Somehow we must ensure that the investment we make in the creation of knowledge has return, meaning brings revenue and generates jobs and growth in Europe. Otherwise we cannot invest again in research. So we need the return, we need the innovation, we need to bring our ideas to the market otherwise in the longer term the circle is not closed. This is why we have to, on the one hand, maintain the talent, help creating demand for innovative products and services in Europe and further down the value chain also keeping some production and manufacturing in Europe. It cannot be that Europe is investing in knowledge generation and ideas and the fruits are harvested in other regions around the world. In the telecom and internet sectors traditionally we were very big inventors – we invented the fax machine, we invented technologies such as skype, even the internet was invented in Europe. But once the technologies become successful they are taken over and bought out by non-European companies and investors. So it is about being able to exploit our knowledge in Europe and cooperate in certain areas with players from other regions, attract investment and people to Europe. In particular we cannot afford that our brain and investment goes abroad. Maintain innovation along the whole value chain from education, meaning talented people, to internationalisation and growth of innovative companies. Many innovations are taking place in sectors where Europe is still strong, e.g. automobile or chemistry. They are not so visible as for example the internet, communications and broadcasting devices.
- How can PPPs and deepening the cooperation across sectors accelerate the innovation and smart growth?
- PPP is a sort of cooperation between the public and private sectors. But PPP is not only cooperation it is also about leveraging public funding. Examples such as the Risk Sharing Finance Facility and networks such as COST show that €1 public investment can generate ten times more money from the private sector. Cooperation across industry sectors becomes ever more important and the ICT sector is playing an outstanding role here. Especially in times of budget restrictions in the public sector it is ever more important that we can attract private capital for the different stages of company development from informal venture capital which is provided by business angels through the different stages of venture capital and including private equity and other forms of private investment. Public money should be used especially when the market is not there yet. PPP is also used now in the framework programmes and it applies to certain circumstances but it’s only one instrument to finance innovation.
- What funding tools may be used to bring back the SMEs on the path of smart products and services in these times of budget cutbacks?
- Especially for SMEs access to the different funding instruments and participation in publicly funded research and innovation projects must be simplified. Ideally there would be a ‘European funding application form for SMEs’ valid for all kinds of publicly available funds. Generating new talent and maintaining and attracting workforce are prerequisite as without skilled people knowledge and ideas cannot be turned into economic power. It is funding tools that cover each stage of the company development from start-up to growth. Formal and informal venture capital are still very much underdeveloped and should be further incentivised by governments. Tax breaks, labour law and cut of red tape are equally important.
According to me a great, but largely untapped, financing power for innovation from the public side is through pre-commercial public procurement and innovation deployment procurement. Public procurement has a very high potential and can be a very important funding instrument especially also for SMEs. In the US I think 2% of the purchasing power of public procurement has to be spent on SMEs. In Spain this year in July they passed a law which says 3% of public procurement and public spending must go to innovative SMEs. Only very few countries in Europe really apply this financing instrument. They should serve as best practice examples. Public procurement for innovation should be used throughout Europe in all regions and countries.